Thursday, July 6, 2017

Did Kevin Hassett Ever Hear About the Solow Growth Model?

When Kenneth Arrow was awarded the Nobel Prize in Economics in 1972, one of the contributions the awards committee cited was his miraculous “impossibility” theorem. Decades from now, Arrow’s theorem, originally drawn in his doctoral dissertation, will be viewed as the 20th-century idea that best anticipated the 21st century. While mathematical in origin, the impossibil¬ity theorem is simple to describe in words: A government is really just a mechanism that makes collective decisions for a large number of cit¬izens who have different preferences. I might want to spend our tax dollars on dog parks; you might prefer more police. The government’s job is to work it out.

I guess by now you may be wondering where this is going. It seems Hassett is making a case for dictatorship based on stimulating economic growth:

An organization called Freedom House rates the level of political freedom of the world’s nations on a scale of 1 to 7, with 1 the most free. For example, according to the 2006 sur¬vey, countries like the United States and Italy are rated 1, while Singapore is rated 4.5, China and Saudi Arabia 6.5, and North Korea 7 ... nfree China had a growth rate of 9.5 percent from 2001 to 2005.

By contrast, the U.S. growth rate averaged only 2.5%. So much for the Bush boom! Then again – U.S. per capita income was considerably higher than that of Chinese per capita income so would not one expect higher Chinese growth – assuming one bothered to have learned the Solow growth model?